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Winners and Losers From the Rise (or Recovery) of China

Jideofor AdibeLondon, England
February 1, 2008

A Liberian dancer welcomes Chinese President Hu Jintao (center, standing next to Liberia's President Ellen Johnson Sirleaf) upon his arrival at Monrovia's Roberts International airport, Feb. 1, 2007, on the second leg of an eight-nation Africa tour. (Photo: Issouf Sanogo / AFP-Getty Images)

China is believed to be the oldest continuous civilization on earth. Unlike Egypt, its rival claimant to that "honor, it has remained an empire" (Kitissou 2007). In this sense, it could be argued that China is not rising, but merely recovering. For decades after its 1949 revolution, China pursued a policy of communist economic development based primarily on the state control of the means of production, distribution, and exchange. In 1979 it began an "open door" policy, a sort of gradualist economic reform, "without any detailed 'blue print' guiding the process" (Prasad 2004). The reforms are generally believed to have been successful because they led to tremendous growth, and an expansion in international trade, with its imports and exports growing at an average rate of 15 percent each year since 1979 (Prasad 2004). Economic growth stood at an average of 9 percent per annum. But who are the winners and losers from the rise (or recovery) of China?

The Goldman Sachs Group (2003) notes that those most likely to benefit from the rise of China include exporters of capital and resource-intensive products, while those that specialize in labor intensive exports similar to those of China will have to undergo a significant adjustment. Many corporations in the mature economies of the West now have a China strategy, sometimes including moving the manufacturing arm of their business to China to take advantage of the relatively cheap labor there. A 2003 study (China Daily) by the Institute for Management Development (I.M.D.), one of the world's best-known business schools, confirmed not only that China was becoming the world's manufacturing center but also that it was providing favorable policies for economic development, especially in the eastern coastal areas, which has a huge labor market of 737 million people.

The I.M.D. report also found that China promotes globalization. On one of the I.M.D.'s lists comparing the extent of its globalization, China moved up two notches in the ranking, indicating that the country has opened wider, and in a more efficient way, since it joined the World Trade Organization in 2001. The study equally found that China's extraordinary growth rate, combined with the fact that it is fast becoming the world's manufacturing center, has made it a growth engine for the global economy. Goldman Sachs (2003), in fact, argues that the fate of the global economic system hangs precariously on China's and Asian developments, with global growth in the coming decades being dependent to a large degree on continued Chinese expansion. Sachs notes that the single greatest imbalance in today's global economy is the United States' vast current account deficit, which must be balanced through capital inflows from the rest of the world. He notes that a large and rising share of the saving for this balancing comes from China, which as early as 2002, was already the second-largest foreign holder of American long-term debt securities, accounting for $165 billion or 6.5 percent of total foreign holdings (International Monetary Fund 2004, cited in Goldman Sachs 2005, 51-52). It has therefore been argued in some quarters that the prospect for global peace hinges more on the willingness of the United States to accept the transfer of hegemony to Asia. As Goldman Sachs (2005, 53) puts it, "the real cause for concern, therefore, is not China's quiet rise but America's noisy decline."

One of the downsides of China's rise, however, has been the country's increasing contribution to the problem of global warming. Bradsher (2003) has argued that China's rising energy consumption complicates diplomatic efforts to limit emissions of global warming gases. The International Energy Agency in Paris, in fact, predicts that in China the increase in greenhouse gas emissions from 2000 to 2030 will nearly equal the increase from the entire industrialized world. As a developing country, China is exempt from the Kyoto Plan on greenhouse gas emissions, which President Bush had rejected in 2001, citing, among other reasons, that the exemption of China from the plan was a serious flaw.

In terms of global influence, one of the likely losers from the rise of China is the United States. China's deepening integration into the world economy, for instance, has seen the country's influence expand in Africa. China's trade and investment in Africa have grown rapidly, with trade between Africa and China doubling to $18.5 billion between 2002 and 2003, reaching $39.7 billion in 2005. China is now Africa's third most important trading partner, behind the United States and France, sustained by trade agreements reached with 40 African countries (Reilly and Na 2007, 135). China's outward foreign direct investment also posted the highest growth of any region from 2003 to 2004 at 327 percent (Boardman 2007, cited in Reilly and Na 2007, 135).

China's increasing engagement with Africa has heightened concerns in the United States that China's rise could challenge the United States' traditional economic and security interests in the region. China, which has historically positioned itself as the leader of the Third World, is attractive to many African countries, especially for its professed respect for each country's sovereignty and non-interference in each country's internal politics.

Copson (2007) has cautioned against any temptation by the United States to ignite a new "scramble" for Africa in a bid to contain China's rising influence in the region, warning that such could lead to a number of unpalatable consequences, including weapon proliferation. He proposes that any response to the threat from China by the United States must be couched in such a way that the benefits of China's growing role in the world economy must be preserved at the same time as mitigating the negative consequences of such a rise.

There are also concerns that China's increasing engagement with Africa, especially its policy of non-interference in a country's internal politics, could be helping to prop up or sustain dictatorial regimes in Africa. For instance, China invested heavily in oil exploration, extraction, transport, and processing in many African countries, including Sudan and Angola, in order to "lock up barrels" at their source. To protect its investments, it usually refuses to ally itself with the "international community" in condemning certain abhorrent actions, such as efforts by the United States to sanction the Sudanese government for encouraging ethnic cleansing in the country's Darfur region, because Sudanese oil output accounts for a very significant portion of its total imports. Chinese arms sales in Africa have also been a source of concern, and it has been alleged that China made more than $1 billion from the war in Eritrea in the 1990's (Servant 2005, 61). Servant (2005) has also called for vigilance to ensure that what at face value could appear to be a "win-win" situation between China and Africa is not in reality naked neocolonialism disguised as South-South cooperation.

China's rise is also linked to the current hike in global energy prices. In 2003 for instance, China's import of oil increased by 30 percent over the 2002 level, taking global energy analysts by surprise. That year China surpassed Japan to become the second largest importer of petroleum after the United States (Thompson 2005, 25). While the rise in commodity prices may be bad news for some, especially in the developed countries, it has benefited many developing countries. Copson (2007), in fact, believes that the boost in commodity prices, caused in part by China's demand, contributed to the positive gross domestic product growth rates now being seen in many African countries.

Overall, therefore, while China's rise (or recovery) benefits some, inducing glee and hilarity from such constituencies, there are those who are definitely threatened by such a rise. Global peace in the next 50 years may therefore depend less on the current politics of the "clash of civilizations," manifested mostly in the superstructures of religion, politics, and culture, than on the more subtle but potentially more dangerous struggle between on the one hand, China's "quite rise" and efforts to contain that rise in the West, and America's "noisy decline," on the other.

A version of this paper was submitted to the Continuing Education Centre at Oxford University, England, in fulfillment of part of the requirements of a three-month course (September to November 2007) on the BRIC (Brazil, Russia, India, and China) economies.